The purpose of this paper is to evaluate if Önancial asset prices and, in par- ticular, sectoral stock prices can help to predict real economic growth. The study is applied to euro area Önancial market prices and real economic growth over the sample 1973 to 2006. The evaluation of the predictive power between the Önan- cial assets is based on the relative improvements in the Mean Square Forecast Errors (MSFE) compared to the MSFE of a simple optimal autoregressive (AR) model, in an out-of-sample forecasting exercise. To test if the inclusion of the Önancial assets signiÖcantly improves the MSFE or not, a test of equal predictive accuracy proposed.
